jch / personal-finance

Guide and notes for personal finance

Personal Finance

This is an outline of our personal finance plan. I'm sharing this as a starting point for others to form their own plan, and also to gather feedback on what we can improve. If you have a suggestion, feel free to file an issue.

I'd like to make financial advice accessible to everyone

Looking for people to talk to and learn more about the problem space. I don't have anything to pitch, but would love to chat. Please email me at [email protected] or file an issue

Debt

• Pay off loans, except ones with very low interest. e.g. 0.9% car loan. Builds credit, less than inflation.
• Never keep a balance on credit cards, auto-pay everything in full
• Ask for a credit increase every year, don't over do it
• Carry less than 1/3 of credit limit in credit card balance
• Check credit score once a year. CreditKarma has a better interface and suggestions for improving credit score.
• Refinance for a lower interest rate on mortgages or large loans
• Ask mortgage lender for a half dozen pre-approval letters in 25k increments up to the max. Prevents seller from seeing your max purchase power.
• Consider 401k loans. Up to $50k, prime rate, and interest and principal are both paid back into the account
• Consider personal loans or personal line of credit for debt consolidation. Example "First Republic Personal Line of Credit" 2.25 - 3.5%, interest only first 2 years, then amortized for remainder of the loan. Total terms from 5 - 10 years.

Liquidity

• 12 months of expenses in a high interest savings account
• Budget out large purchases into monthly amounts to save. e.g. car, wedding, vacation
• "Liquidity access lines" to borrow against your portfolio

Compensation

• The Open Guide to Equity Compensation
• Consider Your Options

Medical

• Health Savings Account (HSA). Maximize employer contributions.
  • Do not invest until balance would exceed minimum to avoid fees
  • Choose a plan that allows investment in index funds like Wells Fargo or Health Savings Administrators
  • Continue to pay medical expenses out of pocket when possible to maximize tax deferred growth
  • No penalties for non-medical withdrawals after 65. Can use as another retirement account.

Retirement

• Pay less taxes - guide to tax advantaged accounts
• Choose a Retirement Plan IRS overview of different plan types. Highlights the benefits of each.
• IRS Rollover Chart shows what retirement plans can be rolled over.
• Calculate whether Traditional or Roth contribution makes sense for your tax bracket. calculator. Typically, high income/high tax rate => traditional, low income/low tax rate => roth. Save on taxes now vs save on taxes later.
• Maximize contributions to tax advantaged accounts: 401k, IRA, HSA.
• Backdoor Roth IRA. Pay special attention to IRA aggregation rule and pro-rata distributions, and the consequences of 'step doctrine' for audits
• After-tax 401k contributions and rollovers
• Choose low cost index funds.
• Charitable giving. Contributions to eligible organizations can be itemized as a deduction

Children

• 529 plan. For non-qualified expenses, principal can be withdrawn without penalty, but withdrawals will be proportional principal and earnings. source
• Vanguard 529
  • $3,000 minimum
  • Age based options. I'm using the "moderate" option: starts at 75/25 stock/bond allocation
• Dependent care FSA. IRS publication 503

Tools

• Review of spending with Mint or Personal Capital. Categorize spending, note any large differences in monthly trends. Link all accounts. Mint is better for budgeting, but Personal Capital does a better job with investment tracking. I use the latter now.
• Vanguard brokerage account. Using this for our Roth IRA and IRA.
• Setup direct deposit and auto-pay for all accounts.
• FI planning tool. Interesting to play with, but no longer using it.
• You Need a Budget - YNAB Displined walkthrough and awareness of all funds is of significant value, even if used only for the trial period.

Resources

• Personal Finance reddit commontopics - good guide for the order one should save in.
• Reddit guidelines for each age group
  • ELI18: Personal finance tips for young adults (US)
  • ELI22: Personal finance tips for older young adults (US)
  • ELI30: Personal finance tips for thirty-something adults (US)
  • ELI40: personal finance tips to make best use of your assets (US)
• Bogleheads: Lazy portfolios. No longer using this, only have target retirement index funds.
• I Will Teach You to be Rich - short, friendly, casual introduction to debit, savings, and retirement
• Quora Personal Finance - stopped using this
• Random Walk Down Wall Street
• Mr. Money Mustache - personal finance and early retirement blog

Entertainment

• Money stuff regular column by ex-Goldman Sachs trader
• Planet Money podcast

Recommended by others

• How To Get Rich
• The Only Investment Guide You Will Ever Need
• Money and Other Subjects
• Pete Jackson feedback
• Radical Personal Finance - Thoughtful introduction of financial perspectives. Minimalist view.
• Khan Avademy - Personal Finance - Excellent presentation, focused at college age, of value to all ages.

personal-finance's Issues

consider fidelity american express card

This American Express card will give you 2% back paid into a retirement account such as a Roth.

https://www.fidelity.com/cash-management/american-express-cards

Spend $3000/month and always pay off the balance, get $720 per year into retirement savings. Compound interest does the rest.

Add information about Roth IRA contribution limits

Once someone is above the contribution limit, there's also the Backdoor Roth IRA

Roth IRA

mortgage tips

A few tips off the top of my head:

1. A pre-approval/pre-qualification isn't worth the paper it's printed on. It has no legal meaning. What you want is a "Conditional Approval" with a "Loan Estimate", which has a legal meaning. See: https://www.consumerfinance.gov/owning-a-home/loan-estimate/
2. Banks don't make money off the interest on mortgages. The profits are entirely on fees/points/locks. Your Loan Officer's compensation is tied to how many fees they can pile on. When you get the Loan Estimate, ask your Loan Officer exactly what every fee is and whether it can be removed. "Document fees" can be like $600, and basically mean printing a PDF. There's also a section called "Services You Can Shop For". You should absolutely shop around and get a gut check on those fees. Very frequently all these different parties are in cahoots (illegally).
3. Consumers put too much emphasis on the rate and not the overall cost of the mortgage. When comparing mortgages from different lenders, you should compare the (upfront_costs + interest_paid_over_expected_time_of_ownership). That's the only way to get an apples to apples comparison.
4. The average term of home ownership is less than 7 years. Folks generally think they will live in a home longer, but they don't. At every point in the past a 5/1 was a better deal for most folks than a 30yr fixed, but shit is absolutely cray right now, so that doesn't necessarily apply at the moment.

Ask for a credit increase every 6 months?

At some point, you should be careful. You don't want too much credit in random credit cards when you need some other loans...as they'll see this as risk.

Investment learning resources

Starting this issue to keep track of recommendations for investing:

• https://stansberryresearch.com/products/retirement-millionaire